So you want to work in Operations and Supply Chain Management?

Well, it’s the start of a new academic year. A new cohort of Undergrads arriving at WBS and all must read OM as a core subject. Many, unfortunately, do not ‘get’ (or want to get) Ops, but some do. In conversations we have with alumni and through our work, the topic of talent in O&SCM often comes up as an area that firms struggle with. As O&SCM academics we always knew that it was a REALLY important area, it appears that the wider business community has woken up. So, what would we recommend to employers and potential employees as the key ingredients for a successful O&SC manager?

1. Deal with both hard and soft data

O&SCM is about two things. Understanding how to fulfil customers effectively and understanding what you should and should not do and how to do them. Some data are hard. Customer demand volumes, volatility, prices. Other data are soft, especially in SCM where relationships with suppliers can be critical. Other data are uncomfortably grey. You think you understand costs but all you have is price data not costs. That’s a bunch of different types of data that need to be dealt with and the best managers understand the different types, how they can be used and how much faith can be placed in them.

2. See the big picture

This is both vertical and horizontal. Vertically, good Ops Managers need to deal with the functions that ‘surround’ operations (typically sales and procurement) and reconcile the inevitable tensions to effectively fulfil customer demand. Horizontally, it is about understanding how what you do at the operational level affects the organisation. For example, how much inventory? Too much stymies cash flow, too little can expose your operation – and customer – to non-delivery. Decisions taken at the operational level impact the firm. Good managers understand why it does and what needs to be done.

3. Understand uncertainty and complexity

Operations and supply chains are inherently unstable and complex. How big is the supply base? What is the demand and supply volatility? Can this uncertainty ever be mitigated or does it have to accepted? Being able to understand this complexity and the interdependence will allow better decisions to be made. For example, if you have an unseasonably warm October (uncertainty!) and there are no summer fashions in store, how do you get your Eastern European supply base to change it’s schedule and deliver in a short time frame without affecting other deliveries (complexity!)? This leads me onto the next thing.

4. Prioritization

Ops and Supply Chains are dynamic. There is volatility at both a customer, supplier and resource level. Customers can increase or decrease orders on a whim, a supplier can go bankrupt or supplies don’t turn up (or are wrong when they get there), and resources, both human and equipment don’t always behave in the way you expect. All of this means that if you want to work in Ops and Supply Chain you need to be able to prioritise and reprioritise (and reprioritise again) to deal with the uncertainty and complexity.

5. Seek a ‘global’ rather than local solution

Too many times we see functions that place the emphasis on the function. This can lead to dysfunctional behaviours and dissatisfied customers. Occasionally the Ops and Supply Chain function(s) may need to keep a hit to keep customers happy (your 3PL will love you for all of those expedited orders). But this means that nearly everyone is happy(ish).

6. Cope with responsibility without power

More often than not, people within Ops and Supply Chains have lots of responsibility. Most firms spend over 75% of COGS on ‘supplies’ and Ops is what allows organisations to create ‘stuff’. So, important right? But, more often than not, this responsibility comes without power. Most firms have COO’s, many firm’s have CPO’s, but that’s a limited amount of power for all that responsibility. Especially given the impact that Ops and Supply Chain plays on the financial performance of an organisation and customer satisfaction. So accept it, and deal with it. Power comers with expertise, not role.

7. A deep understanding and passion about O&SCM

So few of our students want to work in Ops and Supply Chain. But lots of them want to go into Management Consulting. The majority want to go into Banking but Investment Banks from our understanding overwhelmingly hire highly numerate grads (Maths and Physics mainly). Part of this is that Ops is viewed – or possibly we teach it – as a very factory or process centric subject. Part of this is is that it doesn’t seem particularly cool. I would argue that if you want to go into Consulting, understanding about process design and objectives, standardisation and effectiveness, in addition to improving customer satisfaction are ALL critical. This is understanding that O&SCM is a vital area for all organisations. In addition, if you are going to be doing it, and living with it, you need to be passionate about it. You need to be fall in love with it again and again, even when you have a bad day.

8. Deliver from day one

Seems pretty logical right? Ops and Supply Chain Management is about effectively fulfilling customers (both internal and external), so if you are going to work in it you need to be able to deliver. And this needs to be from the start. I also suggest that this needs to be done consistently and pro-actively without starting any fires. Consistency is key…

9. Taking a long view

This is slightly paradoxical given that I have stressed how much of O&SCM is dynamic and complex. But, improvement takes time. More often than not many years. So, deal with the day-to-day but also never lose focus of how long real change takes. One of my favourite anecdotes is that it took Toyota decades to perfect and embed Lean. Why do we expect to be able to do it inside 12 months? By taking a long view you can deal with this.

10. Build relationships

This is the glue that holds everything together. And, these relationships need to be both internal and external. Relationships allow you to understand uncertainty within the customer and supply base, and allow you to create the global solution within a firm. Without them you have limited information, limited knowledge and no goodwill. People who want to work in O&SCM need good interpersonal skills in order to build lasting, strong relationships.

 

 

Standardization across the automotive sector: too much of a ‘good’ thing?

One of the ways in which OM is used in practice is to drive standardization in sub-systems and components. These are, more often than not, procured from suppliers as it has been estimated that in excess of 70% of the cost of a product is outside the OEM. Through the standardization of components, efficiency and economies of scale can be achieved that can (in theory), drive the profitability of an organization significantly. Great. But, what if it goes wrong?

Could recent large-scale automotive product recalls signify that we currently have too much of a ‘good’ thing? The automotive sector is an industry where component and platform sharing is prevalent, leading to the potential for a single component failure to necessitate a recall on a massive scale, as the component will be shared across a lot of models. Toyota in particular In September 2014, Toyota announced the recall of 690,000 Tacoma pickup trucks in the US because of a potential vulnerability in the vehicles’ suspension systems and in October another 1.75 million cars have been recalled linked to brake systems and potential fuel leaks. General Motors has reportedly recalled more than 30 million cars so far in 2014 alone. Whilst some argue that the current trend to recall large quantities of vehicles has helped auto-manufacturers stay in touch with the customer, showcase their superior customer service and (hopefully) entice customers to invest in the beautiful shiny new model that happens to be on display as the customer returns their car for ‘repair’, we might also ponder the not insignificant costs that must be attached to the recall process.

Standardization can significantly reduce the cost of producing vehicles, however, like all good things, we need to balance our desire to reduce costs with our need to ensure quality. Where supply chains are concerned, the predominance of a cost reduction strategy can escalate to the point that quality becomes overlooked. Consider these two core points:

  1. Cost based procurement creates fragility

Standardization of sub-systems and components allows purchasing to drive volume breaks and also creates competition between suppliers to offer the best price. These are then negotiated down. This creates two potential areas of fragility. The first of which is that the firm has created enormous exposure to risk by putting all it’s eggs in one basket. The second is that a supplier is really not going to take further short-cuts in order to eke out some profit from what was already probably a razor thin margin?

  1. Cost based procurement affects the wider system

There is the argument that the 2010 recalls that Toyota issued – and put forward by Akio Toyoda, the CEO of the firm – were due to them pursuing growth that was not sustainable according to the Toyota Production System (TPS). TPS (and Lean) is a socio-technical system; it’s people that implement processes and people need to learn. This takes time. When rapid growth is pursued, systems can be implemented but humans will take time to learn them and create other the implicit systems that allow Operations and Supply Chains to work. Thus, fragility in the system was created leading to recalls as systems were treated as technical whilst ignoring the social aspect of them.

OM prescriptions

So, what can be done to make organizations less exposed to recalls? We have three short prescriptions:

  • Don’t put all your eggs in one basket. Whilst dual sourcing can increase transaction costs (i.e. what it costs to complete the transactions) as a firm is essentially doubling up resources, it spreads risk. If the material and design of the sub-system or component is solid, then process failure is generally the root cause of a recall. Lightning is unlikely to strike twice.
  • Allow suppliers to make a profit. A slightly more expensive supplier with goodwill is likely to be less of a headache than a cheaper, disgruntled one. Disgruntled suppliers are costly, but because organizations tend not to have any understanding whatsoever of transaction costs (too difficult to measure), then piece part price is used to represent cost. Goodwill will allow some transparency into what is actually going on. After all, you’d rather have a thriving supply base than one on life support.
  • Consider the speed at which the system works and remember it’s technical AND social. Too often we consider TPS and Lean as just a tool-set but it took Toyota many decades to implement. That’s because they did it right and considered it as wide-scale cultural change. When firms become more reliant on supply chains (and 99.99% of firms are), then this wider system needs to learn the system. So that’s even wider-scale change then. The additional advantage is that treating the supply chain as a socio-technical network creates informal knowledge exchange (remember that?) allowing information to flow that can allow early problems to be recognized. In theory, recalls shouldn’t be as frequent because they would have been identified far earlier.

Too much of a good thing really can be a good thing. But only when done well.